The department of trade and the Financial Reporting Council have decided that
the existence of a Big Four dominating the audit of the FTSE 350 is not very
good for business.
Let’s quickly recap what the 167-page report says.
That more large auditors are needed to serve the biggest companies, some
companies have no choice over their auditor, and market conditions have made it
almost impossible for the mid-tier to compete with big firms. It also concludes
that the lack of choice has given the big auditors too much power and driven up
the cost of audits.
Heady stuff but only because it comes with the stamp of an official
conclusion. Many observers in, and outside, the profession could have told us
all these things before the report appeared and they did.
What is surprising is that seeing everything laid out in one document makes a
very compelling case for some sort of government intervention or reform to
change the current audit landscape. A case, in fact, that seems very difficult
to counter. Indeed, the little disagreement there has been was the rather muted
counter argument that the lack of choice hasn’t really driven up cost.
The question now, though, is what will the DTI do? Will it bring in some sort
of restriction on access to FTSE 100 or FTSE 350 audits? Rules saying that
auditors have to be changed more regularly?
And will the DTI be left alone to do it? Gordon Brown and the Treasury have
found it almost impossible to leave it alone in the past. Perhaps right now,
though, he has other things on his mind.
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